Investment Jam

Germany and E.U. Partners in Search of New Financial Sources for Growth

Sapin and Schauble. Source Reuters
Michel Sapin and Wolfgang Schäuble are discussing solutions to Europe's investment needs.
  • Why it matters

    Why it matters

    Investment in transportation, energy and information technology might help heal Europe’s ailing economy.

  • Facts

    Facts

    • At a meeting in Milan, E.U. finance ministers will focus on how to increase investment in Europe.
    • German and French officials are preparing an analysis of current weaknesses.
    • Some say the European Union must create a multibillion fund to spark growth.
  • Audio

    Audio

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The issue of investments is gaining ground.

“More private capital” is needed for streets and energy and telecommunications networks, German Chancellor Angela Merkel said recently. Sigmar Gabriel, the minister of economic affairs and energy, has arranged a roundtable on the subject with banks and insurance representatives. Wolfgang Schäuble, the finance minister, is also searching for new investment.

While Alexander Dobrindt, the transport minister, was campaigning for a passenger car toll concept, Mr. Schäuble was already thinking in larger categories: He wants to transfer highway maintenance and toll collection to private hands.

This Friday and Saturday, at a meeting in Milan, E.U. finance ministers will concentrate on how investment in Europe can be increased. According to government sources, Handelsblatt has learned Mr. Schäuble and his French colleague, Michel Sapin, are working on a proposal. It should be provided to Italy, the current holder of the rotating E.U. presidency, by mid-week. In the paper, Mr. Schäuble and Mr. Sapin will present an analysis of  investment weaknesses in Europe.

The common initiative is noteworthy because Germany and France have different views on the topic. Germany’s government primarily is asking for structural reforms, in order to make the environment more attractive for private companies. The French see it as a demand problem.

The longer economic weakness in southern Europe continues, the more the question threatens to put Berlin under increased pressure. After France and Italy, Poland has also requested a new growth policy for Europe. “We need a resolute initiative for public investments,” said Polish Finance Minister Mateusz Szczurek, in Brussels. The European Union must create a new, billion-scale fund for that. The pot of money could be designed based on the model of the euro-rescue fund, the European Stability Mechanism, or ESM.

“According to our assessment, there is no investment gap worth mentioning in the private sector in Germany”

Stefan Schneider, Chief economist at Deutsche Bank Research

The member states should – as with ESM – build a capital stock with cash deposits and, in addition, secure the funds with guarantees. That way, the funds could enable the mobilization of private capital in the markets on a large scale. The funds should be used for projects in the areas of transport, energy or information technology.

However, the proposal is viewed critically by the German government. “There are already enough funding instruments. Those that already exist should be exhausted first,” sources close to the government told Handelsblatt. In this respect, the new Berlin activity when it comes to searching for investment models is also an attempt to counter the demands for new funds in Brussels.

Ms. Merkel, Mr. Schäuble and Mr. Gabriel also want to mobilize private capital within Germany itself. They are reacting to low interest rates that allow investors such as insurance companies to look for new investment opportunities. On the other hand, the debt ceiling places tight limits on the federal government when it comes to taking charge of the money.

Experts are warning about hype. “According to our assessment, there is no investment gap worth mentioning in the private sector in Germany,” wrote Stefan Schneider, the chief economist at Deutsche Bank Research. Private investment decisions result from the earnings expectations of companies. “It is a presumption of knowledge, when state agencies believe that they can assess that better.” Moreover, the German bankers question whether investment-driven higher economic growth in Germany could deliver an important stimulus for the euro zone.

This article was written by Ruth Berschens, Daniel Delhaes, Jan Hildebrand, Axel Schrinner and Thomas Sigmund. It was translated by Anna Park Kim. Vinny Kuntz contributed to the story. 

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