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How to Invest in Europe

Werner Hoyer, president of the European Investment Bank, speaks during a Bloomberg Television interview at the Brussels Economic Forum in Brussels, Belgium, on Thursday, June 9, 2016. European Central Bank President Mario Draghi said fiscal policy should not work against monetary policy by curbing aggregate demand, and should be seen as a microeconomic tool to enhance growth. Photographer: Jasper Juinen/Bloomberg
European Investment Bank President Werner Hoyer wants more money, but the same flexibility.
  • Why it matters

    Why it matters

    The pan-European investment fund, running to as much as €500 billion, could finally bring the Continent’s economy out of its funk if invested properly.

  • Facts

    Facts

    • The European Fund for Strategic Investments was established in 2014 with the aim of triggering €315 billion in investment and creating 1.3 million jobs over three years.
    • European Commission Chief Jean-Claude Juncker in September said he wants to expand the fund to €500 billion by 2020 using funds from the E.U. budget and European Investment Bank.
    • The European Commission plans to direct 40 percent of the money raised into climate change-related investment.
  • Audio

    Audio

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Werner Hoyer, president of the European Investment Bank, has publicly backed European Commission chief Jean-Claude Juncker’s plans for a massive boost to investment in the 28-nation European Union.

But he also warned the E.U. executive arm against tying the hands of the bank, also known as the EIB, which will be tasked with managing where the new money goes.

Mr. Juncker announced in mid-September that he wanted to beef up the European Funds for Strategic Investments, an ambitious project set up in 2014  and designed to jumpstart the Continent’s flagging economy. Under the revised plans, the €315-billion ($350 billion) public-private fund would now have €500 billion made available by 2020 for large-scale investment projects.

In an interview with Handelsblatt, Mr. Hoyer said the fund needed the extra money because “the E.U. is still suffering from a substantial investment deficit.” Mr. Juncker’s plan “is logical and is consistent with the commission’s policy of ‘better spending,’” he added.

Mr. Hoyer should know. The EIB, the publicly-backed bank of the European Union, though it is run independently of the E.U. executive arm in Brussels, has been charged with managing the investment fund.

To finance the expansion, Mr. Juncker wants to make additional funds available from the E.U. budget. The European Investment Bank is also expected to increase its contribution to the fund.

Mr. Hoyer said the additional money will go some way to closing a chronic shortage of investment in Europe, which is holding back the economy.

“The investment gap amounts to several hundred billion euro annually. The shortfall is poisonous for the economy, for productivity growth, and thus for our competitiveness,” he said.

“Money from the E.U. budget will no longer simply be used for one-off subsidy, but can be used several times over, as security for loans. That marks real progress in the use of public resources.”

Werner Hoyer, president, European Investment Bank

Mr. Hoyer also welcomed other proposed changes to how the fund will operate going forward. He added that the fund also represented a better use of E.U. money.

“Money from the E.U. budget will no longer simply be used for one-off subsidy, but can be used several times over, as security for loans. That marks real progress in the use of public resources,” he said.

But there are also warning signs in Mr. Juncker’s plans. The fund must remain flexible to be effective, Mr. Hoyer urged.

While the European Investment Bank uses the fund for infrastructure projects, there are no fixed quotas for particular countries or economic sectors. The European Commission is considering changing that. It wants to allocate 40 percent climate change-related projects.

Mr. Hoyer warned that any sort of earmarking or quotas “artificially constrict our scope for action.”

The European Fund for Strategic Investments will get its extra money partly from additional state loan guarantees. In the years to 2020, an extra €26 billion will be set aside from the E.U. budget, €10 billion more than initially planned.

The European Investment Bank will increase its own contribution by €2.5 billion to €7.5 billion. This will bring the government-guarantee framework for EFSI loans to a total of €33.5 billion. Mr. Hoyer said this will in turn enable an investment capacity 15 times that amount — a total of €500 billion.

Mr. Hoyer’s institution has already helped set in motion a total of 260 EFSI investments in 27 E.U. countries, mobilizing Europe-wide investment of almost €130 billion. This interim result is in line with the internal targets set by the bank, he said.

 

Ruth Berschens heads Handelsblatt’s Brussels office, leading coverage of European policy. To contact the author: berschens@handelsblatt.com.

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