After weeks of speculation, the European Commission formally announced on Nov. 26 its investment plan for the European Union. On the surface, the plan looks ambitious: It proposes to invest some 315 billion euros (roughly $394 billion) in infrastructure over the next three years to reignite growth in the continental bloc. However, the details revealed today show a plan that is mostly a compromise between the conflicting interests of EU members.
The main announcement is the creation of a 21 billion euro European Fund for Strategic Investment, which has the goal of drawing in 15 times that amount in private investment — explaining the headline figure of 315 billion euros. The EU budget will provide 16 billion euros in funding guarantees while the European Investment Bank (EIB) will contribute 5 billion euros. The fund aims to provide partial risk protection to investors and hopes to attract money from the private sector. It will be ready by mid-2015.
The European Commission said the fund would finance strategic projects in areas such as broadband telecommunications, energy, transport, education, research and innovation. A special European Commission-EIB task force, created in September, will be in charge of receiving project proposals from member states. According to the Commission, a first list of possible investment projects will be announced before the end of the year.
As with many EU projects, this fund is the result of diverging interests between member states. Germany considered that the plan should not risk the credibility of the EIB — of which Berlin is a key contributor — or involve any more debt. The United Kingdom opposed any plans that would involve an increase in the EU budget. France, to the contrary, felt that the basic fund should amount to 80 billion euros in fresh money. These divergent views reflect a broader debate that is currently taking place in Europe between countries that support big stimulus packages to generate growth (led by France) and countries that consider fiscal responsibility and economic reforms to be preconditions for growth (led by Germany).
Following the announcement of the fund, Berlin reacted mildly. German Chancellor Angela Merkel said that she welcomed the plan "in principle" but wanted to have more details on how and where the money will be spent. The Germans are worried that the plan will lead to useless infrastructure projects, similar to the ones countries such as Spain carried out in the early 2000s. It is also worth considering that some of the European Union's poorest countries have traditionally had problems absorbing EU funds because they often lack the know-how or the institutional structures to successfully present investment plans to Brussels. Today's announcement was politically important for Jean-Claude Juncker — the investment plan was a key element in his campaign to become president of the European Commission — but it will probably not be enough to generate substantial economic growth in Europe.
