Monday

27th May 2019

MEPs endorse Juncker investment plan despite criticism

  • Jean-Claude Juncker - His scheme will use €8bn in "real" money from the EU budget and trigger an estimated €315bn in private and public investments over the next three years (Photo: European Parliament)

Most members of the European Parliament on Wednesday (26 November) endorsed Jean Claude Juncker's investment plan based on financial engineering, but critical voices said the scheme did not add up.

Juncker defended the scheme, which will use €8bn in "real" money from the EU budget and trigger an estimated €315bn in private and public investments over the next three years.

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He described the plan variously as a "breath of fresh air" in the EU institutions, a "watering can" and "jump leads" - using little public money to attract more private investments by guaranteeing the riskiest parts of each project.

EU parliament chief Martin Schulz, a Social Democrat, was asked by journalists how he can endorse a scheme that very much resembles the "casino capitalism" that triggered the financial crisis. He said "we need this" because it will relaunch the economy.

Gianni Pitella, the Socialist leader in the Parliament, said they would have liked "more public money, more investment, but this is a good starting point."

Meanwhile, the head of the largest group - the centre-right European People's Party (Juncker's own political family), backed the scheme because "mobilising private capital is better than making new debts".

With the new fund being set up within the European Investment Bank, a lending institution controlled by member states, EIB chief Werner Hoyer also addressed the Parliament and said the new structure will report regularly to MEPs.

He admitted that some of the projects may fail, but defended the scheme. "You can do plain vanilla, with low risk, but then you don't generate a lot of business. We must go into higher risk," he said.

As for the central question of how one euro put in the fund will generate 15 euro - as presented by Juncker - Hoyer said: "How can you multiply money like a magician? This is what banks do."

He said the "multiplier effect" of 15 is "conservative", and gave the example of a €10bn EIB capital increase in 2012 which has since triggered "over €180bn" in investments - a multiplier effect of 18.

For his part, commission vice-president Jyrki Katainen, who is in charge of overseeing the implementation and promoting the fund in member states, admitted the plan was "no magic bullet" and said structural reforms and cutting red tape would be essential to making the investment scheme work.

After speaking to "bankers in the City of London", Katainen said the problem was not so much the lack of capital, but rather the lack of visible and viable projects they could invest in. A "transparent projects pipeline" and an online "hub" offering advice to investors and project managers is meant to fix this.

Criticism

During the debate, only a minority of MEPs criticised the scheme.

"The brutal truth is you don't have €315bn to spend. You don't have anything like it. And what you do use, is throwing good money after bad. A lemon, as we say," said a member of the UK Independence Party.

Belgian Green MEP Philippe Lamberts said the scheme reminded him too much of the "socialisation of losses and privatisation of profits" - what happened when banks who gambled away funds had to be rescued with taxpayers' money.

A leftist MEP questioned the "leverage" factor, making one euro worth 15 euro and British Conservative MEP Syed Kamall said his group was "not convinced" about the plan and how it will avoid spending money on useless projects.

Private sector experts also raised their eyebrows.

Mike Shedlock, an advisor with SitkaPacific, an asset management firm, derided the plan: "Juncker's €315bn EU Slush Fund looks like this - 95% Leveraged Magic, 5% Fund."

"Given that it's all funny money anyway, I have a question: Why not provide €50bn in guarantees raising €2.99 trillion in the process," Shedlock wrote.

Meanwhile, the League of European research universities slammed the plan for using money from the EU's research programme, Horizon 2020.

"It should be clear for the EU institutions and the member states that Horizon 2020 is not a lemon which can be squeezed according to the flavour of the day," the association wrote in a press release.

According to the EU commission's presentation, €2.7bn of the €8bn the EU is contributing to the fund will come from Horizon 2020.

"Money diverted from Horizon 2020 could in theory lead to more private research and innovation investments and outcomes. In practice however we all know this is unlikely to happen, as money will be diverted to quick win projects that may please politicians and citizens but that will not invest in Europe's future," the research universities write.

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Tuesday's EP hearing of Finland's Katainen, one of seven new super-commissioners, shed little light on where the money for a vaunted €300bn investment plan will come from.

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