Jean-Claude Juncker's European Investment Plan uses public money to draw out private investment. But there are big questions marks over whether it will succeed
European Commission President Jean-Claude Juncker this week unveiled a new Investment Plan designed to kick-start growth in the sluggish European economy, using €21bn of public money drawn from the Commission budget and the European Investment Bank (EIB) as guarantees designed to attract €315bn in private investment. The money would be put into sustainable investment like green industries, transport and digital infrastructure, youth employment measures and so on (actually, quite a good list of categories, although we would want to see social housing included.)
Juncker plans to mobilise the substantial private savings that have built up because the global financial crisis and the subsequent austerity led to limited prospects for successful investments. This is indeed a fair point: if no one’s got the money to buy things, why invest capital in production? Something needs to be done to encourage the savers to invest their money (especially given that the main other options are speculation on the money markets, and other risky initiatives, like lending the money to people who can’t pay it back – the sort of sub-prime mortgage bubble that led to the global financial crisis in the first place.)
Politically, as Larry Elliott wrote, the plan is an important break with what the Italian leader of the European Socialists and Democrats group Gianni Pittella MEP calls the ‘dogma’ of the last few years, which says that public investment simply squeezes out private sector investment. But Juncker’s proposal would leave most European austerity – at national level, and in terms of revenue expenditure – in place, and investment in itself is hardly revolutionary. And Juncker is avoiding any increase in public borrowing, despite record low interest rates, because of the neoliberal belief that public debt is bad, even if it funds investment. Finally, Juncker’s plan comes with strings attached – unspecified structural reforms which usually mean reductions in social and employment rights, whereas the TUC and others are calling for pay rises to increase demand in the economy.
But even economically, the European trade union movement is proposing a much bigger investment plan, funded by borrowing (in the form of Eurobonds issued by the European Central Bank), which would produce far more quality jobs, underpinned by stronger rather than weaker social rights. The European Trade Union Confederation (ETUC) calls this the New Path 4 Europe. Like many others, we consider the Juncker plan to be too little, although maybe not yet too late. Others, like Mariana Mazzucato, Stephany Griffith-Jones, French President Francois Hollande and the European Parliament’s Socialist and Liberal groups, also think he should be doing more, and there is a growing call for the European Union to allow more budgetary flexibility for countries like France and Italy, or possible debt restructuring for Greece and Spain.
ETUC General Secretary Bernadette Ségol said:
“I salute any attempt to increase investment which would bring jobs, but I do not believe Mr Juncker can raise €315bn from €21bn. The European Commission seems to be relying on a financial miracle like the loaves and fishes.”
“Raising €315bn would be quite a feat, but would fill less than 40% of the annual investment shortfall since the crisis. I am not holding my breath for a major impact on growth or unemployment. A lot more will be needed to get Europe’s economy moving. I urge European Governments to boost the investment effort.”
Juncker’s plan is built only on the hope that investment by the Commission and the EIB will encourage the private sector to invest, with the limited encouragement that the Commission money would take the first hit if investments went bad. There is some evidence that this will have an impact, but The Economist has expressed scepticism that this will work, and the ETUC’s eurobonds plan would be more likely to work, and would provide resources sufficient for the investment challenge Europe faces.
Owen Tudor is head of the TUC’s European Union and International Relations department. This post first appeared in full on the TUC’s Touchstone website
