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17th Jun 2019

Polish finance minister pokes holes in Juncker fund

  • Szczurek: The former ING Bank economist said private investors might stay away (Photo: europarl.europa.eu)

Polish finance minister Mateusz Szczurek has questioned the model of the EU’s flagship investment vehicle, saying it is "underfunded" and warning that investors might stay away.

Speaking at a European Parliament hearing in Brussels on Tuesday (6 January) alongside the EU commissioner tasked with implementing the new fund, Szczurek said there is very little input money to begin with and that investors may be "crowded out" instead of being attracted by the project.

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"I have anecdotal evidence from commercial banks that the European Investment Bank [which is to host the fund] is crowding out private investment," Szczurek, a former chief economist at ING Bank, noted.

He said the European Fund for Strategic Investments (EFSI) and the European bank (EIB) as a whole are "competing on the private market for funding”, adding that the fund’s five-fold "leverage" will be a turn-off for many investors.

When announced late last year by EU commission chief Jean-Claude Juncker, the new €315 billion investment vehicle was immediately criticised for being based on very little "real" money - €21 billion in guarantees from the EU budget and the EIB.

The start-up capital is to be used by the EIB to raise €63 billion to pay for risky infrastructure initiatives, clean energy, and IT projects, and to attract extra private and public investments to reach the €315 billion figure.

For each euro the EU chips in, Juncker promised there will be €15 in top-ups from other sources.

But even the commissioner in charge, Jyrki Katainen, is sounding increasingly cautious.

"According to the EIB’s recent data, they could raise another five-fold in investments, but you can't guarantee it," Katainen said at Tuesday’s parliament event.

He noted that the EIB - a triple-A rated investment bank controlled by national governments - has in the past managed even greater money-raising feats.

But he said initial ideas to leverage the €63 billion eight-fold were unrealistic, noting that he insisted on "a factor of five instead of eight, to maintain the credibility” of the proposal.

National contributions

For his part, the Polish minister said the under-funding problem can be solved if member states are given guarantees their contributions to the fund will not be counted as part of the national deficit in terms of EU budgetary discipline.

The commission has indicated it might do this, but only if the contribution actually triggers an excessive deficit procedure - an EU penalty for going over three percent of national GDP.

The Polish minister said that while the rules underpinning the euro need to be respected, they have become "unenforceable in bad times”.

"We see countries ignoring it and getting away with it. This is unacceptable. The way to do it would be via capital contributions to EFSI and then strict enforcement [of the deficit-and-debt rules]”.

Katainen noted the fund is designed "so it doesn't need any member state contributions”, although he added it would be "very good" if they did chip in.

He said the commission had considered making access to the fund conditional on member states implementing structural reforms, but in the end it abandoned the idea.

On the fund’s governance, the Polish minister also said it would be "useful" to have as many countries on board as possible so that they can “avoid free-riders" - countries who want to tap the fund but not chip in.

But the commission is keen to avoid political meddling in the selection of projects and says they should be picked by a panel of independent experts.

The issues remain open because the commission has yet to put forward the legislative proposals setting up the Juncker vehicle.

The draft bills are due later this month, with the aim of getting the fund up and running in mid-2015.

Better alternatives

But the Poland's concerns were echoed by private sector delegates at Tuesday’s event.

The commission is hoping that global pension funds will be among the investors taking part in the EU scheme.

But Angelien Kemna, the chief financial and risk officer with APG, a Dutch-based firm, warned: "We're a global pension fund. Europe is nice, but if it doesn't get its act together, we’ll go elsewhere”.

“For us, too risky infrastructure is not interesting. We have better alternatives”.

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