European Commission

As Europe Wallows in Crisis, Juncker Hatches €300-Billion Plan to Spark Growth

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Only €300-billion to save Europe, Jean-Claude? A bargain!
  • Why it matters

    Why it matters

    The head of European Union’s executive arm will have to balance demands to spur growth from crisis-hit countries with the German-led push for austerity and fiscal discipline.

  • Facts

    Facts

    • Jean-Claude Juncker wants a €300-billion investment package for Europe.
    • The Luxembourg native’s candidacy to lead the European Commission was controversial among E.U. leaders.
    • Mr. Juncker’s team must be approved by the European Parliament.
  • Audio

    Audio

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The highest priority of Jean-Claude Juncker, the future president of the European Commission, is to increase economic growth to create new jobs.

“As long as 25 million people are unemployed in Europe, we are still in a crisis,” Mr. Juncker said recently.

The former prime minister of Luxem­bourg and conservative Christian Democrat, Mr. Juncker wants the executive arm of the European Union focused for the next five years on fundamental turnaround of the economy. But he is likely to encounter a core problem: Europe is not in agreement about the best way to promote growth. In France, for example, the debate about economic policy recently led to the second government reshuffle in five months.

Even at a meeting Saturday, when E.U. leaders negotiated over the top jobs in Brussels, the subject played an underlying role. German Chancellor Angela Merkelwanted to use the meeting to prevent France’s Pierre Moscovicifrom being named monetary affairs commissioner. As French finance minister, Mr. Moscovicididn’t reduce the budget deficit in Europe’s second largest economy.

Mr. Juncker won’t officially announce his leadership team until the coming week. And after that, the European Parliament still has to approve his team.

Nevertheless, Mr. Juncker is preparing for his time in office. He wants to: officially present a €300-billion ($394.39 billion) investment package within three months; craft legislation to create clarity about the regulatory framework for digital technology within six months; and plan reforms in the common energy market and a restructuring of the euro zone within a year. “The program is ambitious but doable,” a source close to him said.

The current European growth strategy hasn’t worked. The 28 E.U. member states have come only a bit closer to goals in such things as employment, research and education. The gross domestic product in the European Union climbed on average 2.3 percent in the pre-crisis years of 2001-07. The Commission now calculates growth at only 1.6 percent for the years 2014-20. The growth per capita is likely to be almost half of what it was before the Great Recession.

The damage is partially self-inflicted. Countries have never really pursued the growth strategy they had agreed upon, and they paid just as little attention to the Commission’s national-level recommendations. “It is shocking that the member states have only implemented 23 percent of the commission’s recommendations until now,” said Emma Marce­gaglia, president of the European employers’ association, Business Europe. She wants Mr. Juncker to take tougher action against those who reject reform.

At first, Mr. Juncker is concentrating on what he can initiate from Brussels and is relying on consensus to do it.

He knows every growth strategy is doomed to failure without reform in some member states. Particularly important are Germany, France and Italy, who collectively account for two-thirds of the economic activity in the euro zone. But first, Mr. Juncker is concentrating on what he can initiate from Brussels – and is relying on consensus to do it. He has already come to an agreement with governments and their national central banks on the investment package, including an increase in capital at the European Investment Bank. The package aims for money to flow into infrastructure projects such as the expansion of Internet broadband and energy grids, but also into education, research and the promotion of energy efficiency.

The E.U. economy remains fragile, and the smoldering dispute over austerity policies could catch fire again. Mr. Juncker aims to direct attention to uncontroversial issues first. Mr. Juncker, who considers himself to be a consensus-builder, is not likely forge unity among Berlin, Rome and Paris about the proper speed of reform. “Germany is no longer standing alone in the debate over the austerity measures. Ireland, Spain, Portugal, Latvia and Greece, all of whom have brought their budgets in order with great effort, reject the suggestion of a more lax handling of the regulations,” said Martin Selmayr, a close friend Mr. Juncker.

Although the commission is counting on public debt declining slightly in 2015 for the first time in years, Europe is only shoving the problem down the line. In 2015, indebtedness is likely to amount an average 89.2 percent of the GDP, in the euro zone 95.4 percent. How energetically Mr. Jun­cker is able to push ahead with deficit reduction remains to be seen. On the one hand, he once said: “I don’t believe we can create growth on a foundation of a constantly growing mountain of debt.” On the other hand, as head of the Eurogroup, which involves finance ministers in the euro zone, he was not exactly characterized by fiscal toughness.

This article first appeared in WirtschaftsWoche. It was translated by David Andersen. Vinny Kuntz contributed to the story. The author can be reached at: silke.wettach@wiwo.de

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