28th Oct 2016

Public works to drive new spending, says EU executive

The European Commission wants the European Investment Bank and member states to back stimulus measures on public works and infrastructure projects in a bid to kick-start the European economy.

In a paper released earlier this week (31 July) on the EU construction sector, the commission called on member states to bring forward public infrastructure projects.

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It also encouraged governments to put in place tax incentives and financial support including low VAT and interest rates and public subsidies in a bid to stimulate employment. D

espite a decline in the sector caused by the collapse of property bubbles, particularly in Spain and Ireland, construction still accounts for around 10 percent of GDP and 20 million jobs across the EU.

EU governments are struggling to maintain infrastructure investment while pushing through austerity programmes in a bid to reduce budget deficits and debt levels.

An estimated €1 trillion of new investment will be needed for energy infrastructure alone by 2020, according to the commission.

Meanwhile, the EU executive insisted that its first Project Bonds should be earmarked for construction spending.

The move follows the agreement at the June EU summit where leaders announced a €120 billion Growth and Jobs Pact in a bid to convince markets that policy will focus on tackling rising unemployment and a double dip recession across much of the 27-country bloc.

Despite this, markets and observers expressed scepticism at the €120 billion figure, which is predicated on an additional €10 billion of capital for the European Investment Bank (EIB) being leveraged up to €60 billion, while the €55 billion of structural funds does not include any new financial commitments.

In 2011, the EIB, which relies on capital provided by member states but borrows on the open markets, raised €76 billion, mostly from non-EU investors.

The paper indicates a substantial increase in the role of the EIB.

The Luxembourg-based bank, whose president Werner Hoyer, is a former minister in Angela Merkel's government, is increasingly being regarded by EU leaders as an important tool with which to combat the economic crisis.

However, the EIB lent €61 billion in 2011, down on the €72 billion figure for 2010.

In its annual report, the bank commented that this was the start of a "gradual return to pre-2008 lending levels after having made an exceptional lending effort in 2008, 2009 and 2010."

Even so, the EIB has continued to give high priority to financing projects in EU countries struggling to access funds in the financial markets by covering the 50 percent part-funding provided from member states.

At the same time, the EU executive is moving ahead with a Project Bond pilot scheme in a bid to raise €4.5 billion.

Under the scheme, which the Commission will report on in early-2013, the commission hopes to attract capital from pension funds and insurance companies using the EU budget and EIB funds as collateral, to finance upgrades to the trans-Europe transport networks started in the late 1990s as well as energy and broadband projects.

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