Mo' Money

Juncker's Investment Injection

Juncker dpa
A man with a plan.
  • Why it matters

    Why it matters

    Jean-Claude Juncker’s plan could help improve economic growth and employment in the euro zone, which has not yet recovered properly from the 2010-2012 debt crisis.

  • Facts

    Facts

    • The European Commission’s president hopes a new fund triggers at least $393 billion in investment for infrastructure and research projects.
    • If Jean-Claude Juncker gets approval for his plan at a pre-Christmas E.U. summit, then the program would start in mid-2015.
    • German Finance Minister Wolfgang Schäuble says Berlin won’t make extra contributions to the fund.
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    Audio

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European Commission president, Jean-Claude Juncker, presented his much anticipated “investment plan for Europe” on Wednesday in the European Parliament. The European Fund for Strategic Investments (EFSI) plays a key role in the plan. Mr. Juncker, the newly installed E.U. executive branch president, hopes the EFSI, endowed with €21 billion, or $26 billion, will increase growth and create more jobs in the 28-nation bloc.

The economic outlook for Europe, especially the euro zone, has bleakened in recent months and some southern European countries have not yet properly recovered from the debt crisis of 2011 and 2012. National unemployment levels are still as high as 25 percent.

Mr. Juncker wants to use the capital stock to trigger private capital investments of at least €315 billion in the coming three years for infrastructure and research projects as well as innovative businesses.

According to a commission report, the plan would give “European economic recovery more power and reverse the investment decline.” The program could increase the European Union’s GDP by up to €410 billion and could result in up to 1.3 million new jobs.

Investment has decreased in Europe since 2007 to €430 billion, the report says. France, Great Britain, Greece, Italy and Spain have been particularly affected by the drop. In Germany, “long-term low investments from companies and the state could impair economic growth in the intermediate term.”

“We recommend that Germany accept Mr. Juncker's invitation and participate in the new fund.”

Sigmar Gabriel, German Economics Minister

The reason for the slump may be a crisis of confidence, the commission said. Investors do not seem to have great expectations for increased demand for goods and services in Europe. As a result, potential investors are no longer prepared to take big risks.

The plan was well-received in Berlin, where Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble, both from the ruling Christian Democrats, praised Mr. Juncker for putting forward a plan that used already-existing E.U. resources.

 

 

EU stimulus Plan REUTERS
The only way is up. Source: Reuters

 

Juncker indicated that he would be pleased if the 28 member states would commit to contributing to the fund. Whether or not he will get his wish is far from certain. There was some dissent in the German federal parliament. Mr. Schäuble would reject German participation, while the economics minister Sigmar Gabriel, from the center-left Social Democratic Party, argued in favor of it.

“We recommend that Germany accept Mr. Juncker’s invitation and particpate in the new fund,” said Mr. Gabriel.

But those close to Mr. Schäuble said that there were no plans to pay anything into Mr. Juncker’s pot, and that Germany has planned its own €10 billion investment offensive.

Mr. Juncker, the former premier of Luxembourg, wants to act on that point. The new E.U. investment fund would offer private investors “substantial risk protection” for economically reasonable projects, Mr. Juncker’s advisors wrote.

Projects in digital and energy industries, transportation, education and research could be supported. Also, projects that would create jobs, as well as ecologically sustainable projects would be considered for support.

Germany EU US Britain Real GDP-01

 

The E.U. funds could help with financing in the form of long-term bonds, ownership shares or loans for big infrastructure projects as well as venture capital, guarantees or securitizations for small- to mid-sized enterprises.

Operators of the new investment fund would be the European Commission and the European Investment Bank (EIB). The commission would contribute €16 billion to the fund. The bank would inject another €5 billion, for a total of €21 billion, and all E.U. member states would be eligible to participate. It should be an “open structure” for all, emphasized people in commission circles.

In Brussels, it was unclear which E.U. states would participate.

Mr. Juncker is expected to ask for support at an E.U. summit shortly before Christmas. He needs the permission of E.U. heads of state and government to proceed, and he is likely to get it. If so, the program would start in mid-2015.

Mr. Juncker’s investment plan may disappoint some in the European Parliament. Left-leaning members want a large publicly-funded investment program. However, Mr. Juncker cannot deliver that without the help of E.U. member states. The countries would have to take on new debt for a public investment program, and such debt has been rejected by the governments and also by Mr. Juncker and his party, the European People’s Party, or EPP.

The EPP had wished for even more from Mr. Juncker. The party wanted a capital increase of €20 billion by the European Investment Bank. But that would have to be financed by the E.U. states, something they apparently are not prepared to do.

 

Ruth Berschens is Handelsblatt’s Brussels correspondent. To contact the author: berschens@handelsblatt.com

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