An aggressive new investment plan for Europe will feed €315 billion into the real economy over the next three years.
Progress towards this goal is rapid as the European Union and lawmakers are moving ahead quickly on these plans. That makes it all the more important to explain just why we’re doing it.
Professor Hans-Werner Sinn’s op ed this week, and his references to Europe’s shadow budget, seems like a good moment to clear up misunderstandings.
Professor Sinn’s contribution draws some wrong conclusions about what the plan is and how it will work in practice: Four-fifths of the investments will come from the private sector.
The new European Funds for Strategic Investments, or EFSI, will be fed by contributions from the current EU budget, and from the European Investment Bank, or EIB. That means the EU’s budget will not be increased. The loans given or guaranteed by the EFSI, and the risk capital made available by the EIF, a subsidiary of the EIB, will be refinanced by EIB bonds with a top rating.
The EFSI is embedded in the EIB’s current structure. The EFSI won’t take on any debt itself, nor will member states take on new debt on its behalf.
The aim of the EFSI is to stimulate private investment; it is in no way an instrument to share debts among the member states. The EIB’s balance sheet is so strong that it did not need to raise capital to meet its contribution of €5 billion to EFSI.
The EFSI is not an economic stimulus program for crisis countries. Rather it will support projects with real value for employment and growth throughout Europe.
The particular aim of the EFSI is to strengthen the amount of capital available for small and medium sized firms. Politicians don’t select these companies, but rather an independent expert committee. There aren’t any quotas for particular sectors or countries. The EFSI are not invested in the same way across all states. Like a bank, the EFSI makes an individual assessment of the location, the financing instrument, and also the country’s risk. What counts is the strength of the project. Nothing else.
Mr. Sinn mentions a list of potential projects that a working group had considered in December. The 2,000 projects are merely a collection of examples that the member states came up with in a short time, the best they could.
Let me say as clearly as I can: the EFSI is not going to fund all these projects. Our goal is to have a dynamic, transparent pipeline of possible projects for investors to consider. Member states, regional authorities and private investors can propose new projects at any time.
The only risk for the E.U. budget comes from taking on guarantees, and this is capped at €8 billion. New risks will not be heaped on the E.U. budget.
It is wrong to assert that the European Central Bank is making money available for the investment project through its bond buying program. The investment plan is a political campaign and has nothing to do with the ECB and its monetary policy measures. The European investment funds EFSI will support projects in the real economy, together with private investors.
Our investment program is anything but a “shadow budget financed by debt.” The E.U. budget isn’t going to be raised. It isn’t a new shadow budget and member states are not going to have to increase the amount of money provided to the EIB. It’s not about sharing risks but about private investments in the economy.
When I presented our investment plan in Germany two weeks ago, I had some very interesting discussions, including with the Brandenburg state premier, the finance minister, the head of the KfW development bank and leaders from banks, insurers and companies. Everybody was positive: In Germany, you can see that more investment is needed in infrastructure, education and research.
Let’s work together to steer the liquidity we have into investing in Europe’s future.
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