Juncker plan: interim results are positive

Billions for investments

The Juncker plan represents a real opportunity for the European economy

Monday, January 2, 2017 | 11:44

The crisis in Europe is far from over, and there is no sign that it will disappear from the scene in 2017. The uncertainty over Italy, the continuing difficulties in Greece, and the negative consequences of the Brexit decision on the economy of the United Kingdom and its partners, are just that. Some of the problems that Europe has to face. There is no single magic solution for the European economy.

The EU has already prescribed a fairly effective remedy for itself: the so-called Juncker Plan, which aims to make possible billions of euros worth of investments throughout the EU. It is now important that European Union countries take the medicine correctly, and Germany bears a special responsibility in this regard. In this country in particular, there is a lot of criticism to be heard about the recently expanded plan – but it is precisely here that one must boldly stick to the plan. Today’s investments in Europe’s crisis-hit neighbors are an impetus for tomorrow’s growth for the entire EU – including Germany.

At the end of 2014, the President of the European Commission, Juncker, brought his plan out of a hat, which was aimed at stimulating investments in infrastructure and the modernization of small and medium-sized enterprises with a total volume of 315 billion euros. Through the targeted loan program. Contrary to initial concerns, implementation of the European Strategic Investment Fund, the centerpiece of the plan, is off to a good start. As of October 2016, projects have been approved for more than 40% of planned funding commitments. Given the integration of other national financing in particular – in Germany, for example, funds from KFW Bank – the hypothesized effects on private investment also seem realistic.

Criticism of the Juncker plan

However, there is now a barrage of criticism. The European Board of Auditors is skeptical about the inclusion of investments initiated – that is, whether the investments made would not have been made somehow, even without public funds – and suspects heavy-handed effects. The German Bundestag Committee for European Affairs raises the risk of pressure on private financing structures. The interim assessment requested by the European Commission from audit firm EY criticizes the unequal regional distribution of loan commitments.

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But despite all the (sometimes justified) criticism: the European Foreign Investment Fund is currently one of the few realistic tools to help the EU’s stagnant economy and send a clear signal for European integration. The European Financial Stability Facility is an appropriate response by the EU Commission to the lack of investment caused by the sovereign debt and banking crisis, which has paralyzed the whole of Europe. With its focus on overcoming the credit crunch faced by small and medium-sized enterprises and weak infrastructure investment, it is a particularly appropriate tool.

The program can significantly stimulate the economy

The somewhat abstract definition of addendum actually indicates that some projects are being financed and could have been implemented without European funding. Despite these extreme effects that cannot be ruled out, the additional drivers of growth and employment driven by the ESF may in fact be much greater than intended. Additional investments have other multiplier and accelerator effects. If even part of the European Investment Fund funds succeed in stimulating additional investments in countries suffering from the crisis, income and employment will rise in the regions concerned, which will lead to increased capacity utilization and more investment incentives. Thanks to the close integration of European economies, these drivers are also reaching the rest of Europe – especially in Germany.

Criticisms of the potential crowding-out effects of private financing structures are also ineffective. If you look at the regional distribution of past loan commitments per resident, Italy, Spain and France have benefited from loan programs at a higher than average rate. All countries where private financing structures are not healthy and efficient.

On the other hand, in Germany, where SMEs and investors in infrastructure projects can raise capital without much difficulty, EIF funds play only a secondary role. Conversely, the high proportion of funding through the European Investment Fund for infrastructure projects in the UK could be due to the country’s extensive experience in public-private financing – or so-called PPP models. . Even in Eastern Europe, where EIF financing commitments have been relatively small so far, cooperation with the European Investment Bank, which manages the loan programme, should contribute to improving the performance of the financial system.

The size will be increased to 500 billion

In light of the positive interim results, it was the right decision on the part of the EU countries to increase and recently extend the plan despite German hesitation. EFSI now has a target size of €500 billion. But in the next stage, greater emphasis must be placed on strengthening the social infrastructure – health structures in deprived areas, in educational institutions, in structures that accompany the integration of migrants. This is not only because EU countries have for many years invested less in education and health than other OECD countries, but also in order to bring the drivers of European integration closer to their people.