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News : EU Economy Last Updated: Jan 7, 2015 - 10:38 AM


European Commission announces €315bn Investment Plan to get Europe growing
By Michael Hennigan, Finfacts founder and editor
Nov 26, 2014 - 10:35 AM

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The European Commission today announced a €315bn Investment Plan to get Europe growing again and get more people back to work.

The plan announced this morning in the European Parliament by Jean-Claude Trichet, European Commission president, has a €21bn fund, which would be used as "seed money", to entice private backers to "pitch in" most of the rest. Only €8bn of the original money would come from the EU budget itself.

In his speech Juncker explained the need for a plan:

First, because not only are we faced with a serious investment gap; we are caught in an investment trap. When I talk to investors, they all agree that Europe is an attractive place to invest in. But then I look at the figures, they tell a different story: investment levels in the EU are down to €370bn below the historical pre-crisis norms. While investment is taking off in the U.S., Europe is lagging behind. Why? Because investors lack confidence, credibility and trust.

Secondly, because we are confronted with a major paradox: despite the huge liquidity in the world's money markets and corporate bank accounts, investment in Europe is not rebounding.

Thirdly, because our public resources are stretched: our debt levels have increased from 60% of our GDP to 90% in the space of just a few years. Public expenditure already represents close to 50% of EU GDP. What we need is a smart use of public money, geared to unlocking investment. Public expenditure should be used for what it is best at doing: funding our schools and welfare systems, not servicing our debt."

The plan is built on three main strands (see Factsheet 1)

  • the creation of a new European Fund for Strategic Investments (EFSI), guaranteed with public money, to mobilise at least €315bn of additional investment over the next three years (2015 - 2017);
  • the establishment of a credible project pipeline coupled with an assistance programme to channel investments where they are most needed;
  • an ambitious roadmap to make Europe more attractive for investment and remove regulatory bottlenecks.

According to European Commission estimates, taken as a whole, the proposed measures could add €330 - € 410bn to EU GDP over the next three years and create up to 1.3m new jobs.

The Investment Plan will unlock public and private investments in the real economy of at least €315bn over the next three years (2015-2017). At a time when public resources are scarce while financial liquidity exists in financial institutions and on the bank accounts of individual and corporations, ready to be used, the challenge is to break the vicious circle of under-confidence and under-investment. The Investment Plan foresees a smart mobilisation of public and private sources of finance – where every euro of public money is used to generate additional private investment, without creating new debt.

Illustrating the type of projects he had in mind, Juncker told MEPs he had a vision of:

  • Schoolchildren walking into a brand new classroom equipped with computers in the Greek city of Thessaloniki;
  • European hospitals saving lives with state of the art medical equipment;
  • French commuters charging electric cars on motorways in the same way as petrol stations were used now;
  • Households and companies becoming more energy efficient.

A new European Fund for Strategic Investments (EFSI) will be set up in partnership with the European Investment Bank (EIB). It will be built on a guarantee of €16bn from the EU budget, combined with €5bn committed by the EIB. Based on prudent estimates from historical experience, the multiplier effect of the Fund will be 1:15. In other words, for every public euro that is mobilised through the Fund, € 15 of total investment, that would not have happened otherwise, is generated.

The focus of the Fund should be to invest in infrastructure, notably broadband and energy networks as well as transport infrastructure in industrial centres; education, research and innovation; and renewable energy and in SMEs and middle capitalisation companies (mid-cap).

EFSI Risk Bearing Capacity Multiplier
(averaged)
Investment
in the real economy
Long-term investments 16 bn

15

 

240 bn
SMEs & mid-cap companies 5 bn 75 bn
Total 21 bn 315 bn

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