Economy

The European Investment Plan: how big is Mr Juncker’s big idea?

05 December 2014

Article by Robin Wilkinson, National Assembly for Wales Research Service

Image from Geograph by Peter Shimmon. Licensed under the Creative Commons.
Image from Geograph by Peter Shimmon. Licensed under the Creative Commons.

New EU President Jean-Claude Juncker recently announced his big plan to kick-start the European economy: a €315 billion investment package designed to stimulate jobs and growth in Europe. So far, responses have been mixed. Critics have pointed out that his proposals only involve a €21 billion investment of EU money, with the rest expected to come from Member States and private investors, and that this fifteen-fold multiplication is risky and overly optimistic. Others have welcomed what they see as the economic stimulus that Europe needs to fully recover from the financial crisis.

What are the details of Mr Juncker’s big idea, and what opportunities does it offer for Wales?

President Juncker’s investment plan has three main strands:

  • The creation of a new European Fund for Strategic Investments (EFSI). This fund is intended to mobilise at least a €315 billion over the next 3 years, using an investment of €21 billion of public money.
  • A “Project Pipeline” of viable projects awaiting investment, to allow public and private investors to access information about these projects. These project proposals would receive technical assistance from Commission staff.
  • A “Road Map” to remove red-tape and other barriers that hold back investment in Europe.

The European Commission has estimated that these proposals could contribute up to €410 billion to EU GDP over the next three years, and create up to 1.3 million new jobs.

Central to these proposals is the European Fund for Strategic Investments (EFSI). The plan is to use this fund to help finance projects in key strategic areas such as energy, transport, broadband, education, research and innovation. Member States have been asked to submit lists of projects to the European Commission/European Investment Bank Task Force running the Fund, having selected projects according to the following three criteria:

  • EU-added value (projects in support of EU objectives).
  • Economic viability and value – prioritising projects with high socio-economic returns.
  • Projects that can start at latest within the next three years, i.e. a reasonable expectation for capital expenditure in the 2015-2017 period.

The Commission hopes to have the Fund up and running by mid-2015.

The current problem, as Mr Juncker sees it, is that despite there being plenty of money in the system, enough investment is not taking place in Europe. Investment levels in the EU are still €370 billion below pre-financial crisis norms. His plan therefore centres on using a relatively small amount of EU funding to unlock large-scale public and private investment.

His proposal is to use €16 billion from the EU budget and an additional €5 billion from the European Investment Bank. This is intended to act as a catalyst to attract a total of €315 billion when topped up with other public and private sources, so further investment can take place without generating public debt.

This plan has led to the Economist calling Juncker “Europe’s greatest alchemist”, as he seeks to transmute each €1 of EU funding into a €15 investment. However, the European Commission claims that this multiplier is a “prudent estimate, based on historical experience”, citing previous instances of European Investment Bank initiatives attracting additional funding at multipliers of 1:18 and 1:20.

Either way, regardless of its eventual scale, the EFSI clearly represents an opportunity for further capital investment in Europe. What opportunities are there for Wales and the UK under the scheme?

This is a question that is hard to answer with much precision at the moment. President Juncker has said that allocations from the fund will not be governed by “thematic, sectoral or geographic pre-allocations”, so there will be no set allocation for Wales or the UK. And without further detail as to how allocations from the Fund will be made it is hard to say which, if any, mooted projects within Wales could receive funding. However, given the Commission’s call for greater investment in renewable energy, those behind the Swansea Bay tidal lagoon proposals may want to keep an eye on the debate as further details emerge.

The European Commission website includes a profile of levels of investment in the UK, which may shed some light on the likely success of bids by the UK to the EFSI. This analysis shows that the UK has a low level of investment compared to the EU average and needs greater public sector investment in infrastructure, which is low compared to other EU countries. However, it also concludes that investment is rising faster in the UK than the EU as a whole, and will continue to do so between 2015 and 2016.

Commentary on the Euractiv website has suggested that the EFSI will primarily be used to channel money towards southern Mediterranean countries that were hardest hit in the financial crisis. It quotes a European Commission source as stating: “there is no question of this money heading towards solar panel projects in Munich.” As investment growth in the UK outstrips the EU average, is there a risk of projects in the UK being seen by Commission officials as “solar panels in Munich?”

Another point of interest from a Welsh and UK perspective is that the Commission has proposed that Member State contributions from their own budgets to the investment strategy would be neutral with regard to the Stability and Growth Pact. This means that Member States can borrow to contribute to the Fund without this affecting their public debt figures. The President of the Committee of the Regions – which represents sub-Member State institutions such as the National Assembly for Wales – has welcomed this move, but stated that it “should be extended to all national and regional investment matching EU Structural and Investment Funds”.

The next step is for the EU institutions to agree the relevant legislation needed to put Juncker’s investment plan into action (more information available here). Further details of the EFSI will then emerge – such as detailed eligibility criteria and whether stakeholders in Wales can bid directly into it, or have to go through the UK Government as the Member State. Only then will we really know what opportunities it offers for growth in Wales.