Fri | Dec 2, 2016

EU proposes US$380b investment plan

Published:Thursday | November 27, 2014 | 12:00 AM

The European Union's executive has proposed a plan to boost investment in the bloc's flagging economy by €315 billion (US$380 billion) by attracting reluctant private investors with guarantees and seed money. Experts warn, however, it alone will not be enough to restart growth.

European Commission Presi-dent Jean-Claude Juncker said Wednesday that the long-awaited plan will use €21 billion in money from EU institutions to entice spending on projects in education, transport, the digital economy and the environment.

Juncker estimated that every euro invested in the three-year scheme could attract private and public investment of about €15. The Commission said the plan would create up to 1.3 million jobs to help alleviate high unemployment, which has been hovering around record rates in the EU since the financial crisis.

"We are offering hope to millions of Europeans disillusioned after years of stagnation," Juncker told the European Parliament in Strasbourg, France.

Europe's economy has been struggling to grow since it emerged from recession over a year ago, partly because many governments are still cutting back on spending to reduce debt. The European Central Bank has offered economic stimulus, but says it can only do so much, and that investment needs to pick up.

Juncker hopes to do just that with what he called "a grand bargain to put Europe back to work". Many independent experts, however, called it too little to achieve so much.

"Whether that is enough to create a complete turning point, I very much doubt it," said Fabian Zuleeg, the chief executive of the European Policy Centre think tank. "There is not enough new it in. It is not ambitious enough, so we should have seen something bigger."

Adalbert Winkler, a professor at the Frankfurt School of Finance & Management, said the programme would satisfy those who oppose more government deficit spending but did not get to the root of Europe's stagnation. "We need more demand from government spending from those governments that have both the means and the credibility to do so," Winkler said.

He said financially solid countries such as Germany could spend more and finance themselves at current very low interest rates. German officials, however, have focused instead on balancing their budget.

The proposal will be discussed by the 28 EU leaders at the December 18-19 summit.

Under the plan, a European Fund for Strategic Investments will rely on €21 billion (US$26.5 billion) in guarantees from the EU budget and the European Investment Bank. It will be used to offer loans worth over €60 billion (US$75 billion) to stimulate investments of at least €315 billion.

Juncker said the fund was necessary to jump-start Europe's economic engine, since investors on the continent are wracked by uncertainty.

Investment in the EU is down some €430 billion (US$540 billion) compared with 2007, before the financial crisis exploded.

- AP