19th Aug 2022


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.

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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


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

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