Juncker reveals major investment package

Jean-Claude Juncker at the European Parliament on Monday

The EU will put forward some 20 billion euros in order to boost investments worth 300 billion in the coming years without any contribution from member states. That’s the master plan that Commission President Jean-Claude Juncker, will present to the European Parliament on Wednesday. EU officials say the scheme is realistic, but financial experts have called it too optimistic and warn of disappointment.

The 300-billion euro investment package was the big promise made by Juncker in campaign before being elected president of the European Commission. Now it’s time to deliver.

On Wednesday (26.11.2014) he will stand before the European Parliament in Strasbourg and explain how it will be done.

8-billion-euro guarantee to become 315-billion-euro investment

Together with the European Investment Bank (EIB), the Commission will create a fund called the European Fund for Strategic Investments (EFSI). The fund will consist of public EU money, amounting to 21 billion euros.

The 21 billion euros will come from several sources. The Commission will take 8 billion from the EU budget, mainly from the infrastructure programme Connecting Europe Facility, and the research and development programme Horizon 2020.

This budget contribution will be used to guarantee 16 billion euros. The European Investment Bank will in turn provide 5 billion so that the public EU money reaches 21 billion.

Using this money as backup, the EIB will have a lending capacity of 63 billion, which in turn is expected to be pumped up by private investors in order to reach the total amount of 315 billion euros in investments.

Despite the complicated structure, it’s been described as an innovative and deliverable scheme.

“We believe this is realistic. We don’t count on money falling from the sky,” said an EU official on Tuesday (25.11.2014), adding that no additional contribution from EU member states is needed, although they are more than welcome to chip in if they like.

Boost for struggling economies

The investment package will run over three years between 2015-2017, giving extra investments worth 105 billion euros per year. It is a lot of money given that the total annual budget of the EU amounts to roughly 140 billion per year.

The 315 billion euros will target certain sectors where the Commission sees the highest growth potential, such as in infrastructure, transport and renewable energy. The member states to receive the actual investments have yet to be decided; there will be no country quota.

The investment package is meant to give a push to the struggling European economy in general, where growth numbers have stagnated.

The Commission estimates that the plan could add over 400 billion euros to the EU’s GDP and create 1.3 million jobs. However, financial experts in the banking sector don’t share these optimistic estimates.

Commission too optimistic

The public EU money in the EFSI, 21 billion euros, will be the basis for the 315-billon-euro investment. This gives a so-called leverage, i.e. a multiplier, of 1:15 coming from private sector involvement.

EU officials claim that the figure is realistic. They even say it’s a prudent estimate based on the vast experience from similar schemes within both the EIB and the Commission.

Koen De Leus, senior economist at KBC Group, is not convinced. “I think they’re optimistic and I think that in the end this could become a very big disappointment,” he told Euranet Plus.

De Leus doesn’t believe that the investment package will have a major impact on jobs and growth in the European economy, as the Commission suggests. There is already much liquidity on the market and interest rates are low. The problem is not a lack of cheap money, he argued.

“Nobody wants to invest now, that is the problem. There is no economic growth and there is no confidence. As long as there is no confidence, investors are not going to invest,” he explained.

EU will fill market gap

EU officials have a different point of view. They admit that the problem lies with the so-called project promoters, – the companies – and that there is no lack of liquidity nor lack of investors with money. But they argue that the 315-billion-euro investment package is really about bringing back confidence.

The Commission is also convinced that companies are holding back on investments because they don’t have direct access to cheap credit, like ECB loans, access that the financial sector enjoys.

• Author: Andreas Liljeheden, Euranet Plus News Agency

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• Presentation of the new investment plan with video by the European Commission

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