Friday

29th Mar 2024

Opinion

Common European investment programme needed

  • 'The good news is that money is out there' (Photo: formulaphoto)

Investments had to make it to the top of agenda sooner or later. Low growth, deflation risks, high unemployment, and decreasing investments levels indicate that something is still wrong.

The diagnosis and policy prescription is quite clear now – more public and private investments should help us overcome the crisis. We welcome the €315 billion investment plan unveiled on Wednesday (26 November) by European Commission President Jean-Claude Juncker and I believe it is an important step to help recovery in Europe.

Read and decide

Join EUobserver today

Get the EU news that really matters

Instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

It is crucial to create a pool of viable investment projects in Europe and address the issue of how to finance them.

Only few member states have room for public investments; and even there, national politics make it difficult. The budgets of most EU countries, including Slovakia, are too strained. This makes it virtually impossible to make public investments of macroeconomic significance.

In addition the private sector is deleveraging. The European Commission noted only recently that the effects of deleveraging on GDP, investment, consumption, and trade balance are very long and very significant.

Public investments are needed to give strategic direction and to mobilise private investments.

Promoting investments does not, however, mean abandoning public consolidation nor does it mean questioning the significance of structural reforms.

Promoting investments is a matter of basic arithmetic, pure and simple. There is no need to reinvent the wheel: GDP is composed of consumption, investment, government spending and net exports. If investment is falling and other components remain unchanged, GDP falls too.

Unfortunately, this is pretty much the definition of today’s situation.

Investment levels are abnormally low in the EU. The eurozone is essentially trapped in a vicious circle - fall in demand causes lower investment, which in turn further depresses potential output.

The good news is that money is out there.

We have to mobilise the mountains of idle savings that are not been invested in the real economy. But we must resume productive investments without compromising fiscal rules - something which is possible.

Given the limits of national budgets, a common European investment programme financed by common European borrowing should be seriously considered. One of its tasks would be to absorb excess liquidity from the markets.

Aside from the Juncker package, the International Monetary Fund has recently proposed common investment in public infrastructure from the EU centre. Polish finance minister Mateusz Szczurek recently made an interesting proposal to create a €700 billion Fund for Investments.

However, it might be rather difficult for many member states to contribute capital to a common European fund.

Instead of fiscal backing, monetary backing is possible, too.

If the ECB decides to implement quantitative easing (QE), it could buy the bonds of the European Investment Bank Group.

Within this framework, the EIB Group could finance a massive investment programme by selling more bonds. They would be purchased on the secondary market by the ECB.

This would kill two birds with one stone.

First, it would define a suitable asset for QE. Second, it would keep the EIB Group’s bond yields low, since the secondary-market purchases by the ECB would provide implicit guarantees to investors.

Completing the fiscal architecture

Economic theory as well as practical experience shows that completing its fiscal architecture will be key for the eurozone to prosper.

A common European investment programme is, in my view, an inevitable brick in this construction. Its timing and set-up need to be discussed.

Slovakia is ready to steer these discussions during its presidency of the European Council in 2016.

Before those grand projects materialise, we need to act within the given limits. The constrained public sources need to be used in the most efficient manner possible.

One particular experience is Slovakia’s use of financial instruments under the Slovak Investment Holding.

The Slovak government decided that at least 3 percent of the European Structural and Investment Funds be set aside for revolving instruments.

The aim is to mobilise private capital and to support economically viable projects in strategic areas such as infrastructure, energy efficiency, energy production, SMEs, social venture capital, or waste management.

This shows there is a momentum for investment – both public and private – at the national and European levels.

It is heartening to see that we are moving in the right direction.

Peter Kazimir is finance minister of Slovakia

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

EU Modernisation Fund: an open door for fossil gas in Romania

Among the largest sources of financing for energy transition of central and eastern European countries, the €60bn Modernisation Fund remains far from the public eye. And perhaps that's one reason it is often used for financing fossil gas projects.

Why UK-EU defence and security deal may be difficult

Rather than assuming a pro-European Labour government in London will automatically open doors in Brussels, the Labour party needs to consider what it may be able to offer to incentivise EU leaders to factor the UK into their defence thinking.

Column

EU's Gaza policy: boon for dictators, bad for democrats

While they woo dictators and autocrats, EU policymakers are becoming ever more estranged from the world's democrats. The real tragedy is the erosion of one of Europe's key assets: its huge reserves of soft power, writes Shada Islam.

Why UK-EU defence and security deal may be difficult

Rather than assuming a pro-European Labour government in London will automatically open doors in Brussels, the Labour party needs to consider what it may be able to offer to incentivise EU leaders to factor the UK into their defence thinking.

Column

EU's Gaza policy: boon for dictators, bad for democrats

While they woo dictators and autocrats, EU policymakers are becoming ever more estranged from the world's democrats. The real tragedy is the erosion of one of Europe's key assets: its huge reserves of soft power, writes Shada Islam.

Latest News

  1. Kenyan traders react angrily to proposed EU clothes ban
  2. Lawyer suing Frontex takes aim at 'antagonistic' judges
  3. Orban's Fidesz faces low-polling jitters ahead of EU election
  4. German bank freezes account of Jewish peace group
  5. EU Modernisation Fund: an open door for fossil gas in Romania
  6. 'Swiftly dial back' interest rates, ECB told
  7. Moscow's terror attack, security and Gaza
  8. Why UK-EU defence and security deal may be difficult

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Stakeholders' Highlights

  1. Georgia Ministry of Foreign AffairsThis autumn Europalia arts festival is all about GEORGIA!
  2. UNOPSFostering health system resilience in fragile and conflict-affected countries
  3. European Citizen's InitiativeThe European Commission launches the ‘ImagineEU’ competition for secondary school students in the EU.
  4. Nordic Council of MinistersThe Nordic Region is stepping up its efforts to reduce food waste
  5. UNOPSUNOPS begins works under EU-funded project to repair schools in Ukraine
  6. Georgia Ministry of Foreign AffairsGeorgia effectively prevents sanctions evasion against Russia – confirm EU, UK, USA

Join EUobserver

EU news that matters

Join us