European Commission Investment Plan for Europe

The European Commission’s Investment Plan for Europe (EC IPE) known as the “Juncker Plan” or the “EU Infrastructure Investment Plan” is an ambitious infrastructure investment programme first announced by European Commission President Jean-Claude Juncker in November 2014: it aims at unlocking public and private investments in the “real economy” of at least € 315 billion over a three years fiscal period (Jan. 2015 – Dec. 2017).

A priority for EU policy makers

Top item in EU Commission 2015 work programme

At a Dec. 16 2014 meeting held in Strasbourg, EU Commission policy makers termed it the number one initiative in their new “roadmap for getting Europe back to work, based on clear priorities […] to boost our economy” [1]

‘Focal point’ of Latvian EU council presidency

In a January 9 2015 meeting held in Riga to kick off Latvia’s EU Council presidency, Latvian Prime Minister Laimdota Straujuma insisted that, during its mandate, Latvia would focus on introducing the commission’s €315bn investment plan “which testifies that we are committed to supporting our businesses“. [2]

Mediocre physical infrastructure in many EU countries, including Germany

Even rich EU countries such as Germany and Luxembourg had for many years deliberately delayed or reduced infrastructure investments in order to limit public spending. [3] There is thus an EU-wide need for better transport links, power grid connections, super-fast broadband networks, as well as school and hospital improvements [4]

Fostering growth through co-investment with inst. investors

The adoption of the European Commission’s Investment Plan coincides with the emergence of a new, more progressive policy consensus propitious to long-term investments in modern transportation, energy and other socially-beneficial assets after seven consecutive years of low to mediocre growth that followed the start of the Great Recession. [5] It also coincides with a renewed interest for infrastructure assets from the part of pension funds, sovereign wealth funds and insurers, at a time when returns from some of their traditional core investment vehicles – notably government bonds and listed equity – proved to be lower than they normally had been in years past (“quest for yields” in a context of monetary complacency). [6]

Avoiding ‘highways to nowhere’ and ‘white elephant’ projects

Some experts have called for a cautious, cost-conscious approach to alleviate legitimate fears by European taxpayers that this could turn out to be yet another expensive EU scheme marred by administrative inefficiencies and political preferentialism for local or national ‘pet projects,’ potentially causing an oversupply of certain types of infrastructure projects in countries or regions that don’t really need them: “EU policy makers, public lenders and development banks will need to assess thoroughly the tangible interest of future infrastructure investments one project at a time, an effort for which prospective pension and insurance co-investors from sophisticated jurisdictions such as Alberta, California, Ontario, Switzerland and the UK can play a decisive part.” [7]

Results

In August 2018, the investments triggered by the ‘Juncker plan’ are said to amount to €335bn [8], exceeding the objective by $20bn. The European Investment Bank financing is said to exceed $65bn, making the leverage ratio at about 5, while the initial (criticized) estimation was 15 [9] The European Investment Bank provides a list of EFSI projects [10] but it’s very limited and can’t account for the given results; some data on private financing is also hidden due to business confidentiality.

A study [11]by Ernst and Young contracted by the European Commission at the end of 2016 seems to be the most recent evaluation of the project; while EY is a well-known audit company the report takes pains to point that it is an ‘ad hoc audit’ that has to be done in a ‘short time frame’: one month for data collection based on interviews with project stakeholders and an online survey of 136 participants with 65 full responses (page 12) and as such has ‘limitations to the level of depth’ (page 2)

 

References

  1. ^EC Press Release : ‘A New Start: European Commission work plan to deliver jobs, growth and investment’, EU Commission Press Release Database, 16 December 2014 – Strasburg
  2. ^Julie Levy-Abegnoli : ‘€315bn investment plan ‘focal point’ of Latvian EU council presidency’, The Parliament Magazine, 9 January 2015 – News
  3. ^ Nicolas J. Firzli : ‘2014 LTI Rome Conference: Infrastructure-Driven Development to Conjure Away the EU Malaise?’, Revue Analyse Financière, Q1 2015 – Issue N°54
  4. ^Laurence Peter : ‘EU investment: Juncker’s cunning plan’, BBC News, 17 Dec. 2014 –
  5. ^ Abiad A. and D. Furceri : ‘Is it Time for an Infrastructure Push? The Macroeconomic Effects of Public Investment’, IMF 2015 World Economic Outlook, October 2014–
  6. ^ Nicolas J. Firzli and Joshua Franzel : ‘Infrastructure Investments: Harnessing LT Capital for Local Development’, Public Management magazine, December 2014 – pp 16-19
  7. ^ Nicolas J. Firzli : ‘2014 LTI Rome Conference: Infrastructure-Driven Development to Conjure Away the EU Malaise?’, Revue Analyse Financière, Q1 2015 – Issue N°54
  8. ^European Commission: ‘Investment Plan results’ Investment Plan for Europe, July 2018
  9. ^Ian Traynor ‘EU parliament gets behind Juncker’s €315bn investment plan’ The Guardian 26 Nov 2014
  10. ^European Investment Bank: ‘EFSI project list’ August 2018
  11. ^Ernst and Young: ‘EY Report on EFSI’ European Commission, Nov 2016

Ofer Abarbanel – Executive Profile

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Ofer Abarbanel online library

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