EU to invest $510b into economy

JUMP-STARTING MOVE: Mr Juncker announcing the investment plan to "kick-start" the economy at the European Parliament in Strasbourg, France yesterday.


    Nov 27, 2014

    EU to invest $510b into economy


    NEW European Union Commission chief Jean-Claude Juncker unveiled yesterday an eagerly awaited 315-billion-euro (S$510 billion) investment plan to "kickstart" the economy, saying it would show the world that Europe was back in business after years of crisis.

    Some European countries have also voiced their support.

    Mr Juncker said the proposal, which must be approved by European leaders at a summit next month, would mix an investment fund with a scheme to match new projects with private money.

    "Europe needs a kick-start and today the commission is providing the jump cable," he told the European Parliament in Strasbourg, France. "We need to send a message to Europe and to the rest of the world: Europe is back in business."

    German Chancellor Angela Merkel said yesterday that the German government "supports in principle" Mr Juncker's investment plan to kick-start growth.

    "But it must be clear to everyone where the projects are in the future," she added.

    French Finance Minister Michel Sapin said the investment plan to spur EU growth was a "first step."

    To counteract stagnant growth, he said, the European Union must also have a "monetary policy that supports activity, an adjustment of the rhythm of deficit-reduction and reforms to help growth".

    The new European Fund for Strategic Investment will be funded to the tune of 21 billion euros, but Mr Juncker said its work will have a net effect on the economy of 15 times that, about 315 billion euros.

    The plan is the cornerstone of his five-year agenda to revive the EU's moribund economy, which has failed to grow since the financial crisis and is mired in mass unemployment and near-deflation.

    When he took office on Nov 1, Mr Juncker had promised to unveil the plan by Christmas so that it could be up and running as soon as possible amid renewed global concerns over Europe.

    The heart of the problem in the 28-nation bloc is a drastic lack of investment, which remains way off pre-crisis levels, in stark contrast to the United States and despite unprecedented stimulus measures by the European Central Bank.

    The plan is designed to attack the investment problem head-on, but with the added challenge to do so without more public spending, with most EU countries already paralysed by high deficits and mountains of debt.

    "The amounts are lower than we hoped, but we felt that coming in recent weeks," an EU diplomat told AFP on condition of anonymity.

    In essence, the plan uses existing cash from both the European Investment Bank (EIB) and EU to feed an investment fund that will be tasked with financing private-sector driven projects.

    But economist Reinhard Cluse at UBS in London said that EU investment plans "focus too hard on big headline numbers".

    "These have relied on significant 'crowding in' of private resources, which has often failed to materialise," he said, before the final details of the plans emerged.

    A list of projects is currently being drawn up by EU and EIB officials, with the input of member states.

    Officials hope the fund can be operational by the middle of next year.

    Once up-and-running, a team of financial experts at the new fund will help decide on the projects, mostly based on their level of advancement and the likelihood to draw in private investors.

    Tensions were high ahead of the plan, with EU member states at odds over the final amount and the balance between public and private spending.

    Economics Affairs Commissioner Pierre Moscovici warned last month that the plan should be convincing. Otherwise "this will seem like a trick, recycling, and therefore a flop", he told AFP.