European Union countries should set up a joint fund to invest in large infrastructure projects that is financed ”in a similar way and on a similar scale” as the eurozone’s €500 billion bailout fund, Poland’s finance minister said Thursday.
In remarks at the annual dinner of Brussels-based economic think-tank Bruegel, Mateusz Szczurek warned that the EU was now facing not only a “lost decade” when it comes to growth, but also a “lost generation” of young men and women who can’t find jobs.
“As a continent, we are doing worse than Japan in the aftermath of the financial meltdown of the 80s and worse than during the Great Depression in the 30s,” Mr. Szczurek told the guests, which included Jean-Claude Trichet, the former president of the European Central Bank, and several European Commissioners.
The Polish finance minister, who took up his office last year, said the EU needs some €700 billion, or about 5.5% of the bloc’s GDP, in extra investments to reach its full economic potential. Given that national governments have cut back on public investment due to the EU’s tough budget rules and private investors are too concerned abut the EU economy to put money into long-term projects, the funds will have to come from the European level, Mr. Szczurek said.
As a result, Mr. Szczurek said, a European Fund for Investment should be created, ideally as a special-purpose vehicle under the auspices of the European Investment Bank. The fund could then borrow money on financial markets and invest in pan-European projects, especially ones linked to transport, energy, information technology and defense, he added.
Similar to the European Stability Mechanism, the eurozone’s rescue fund for cash-strapped governments, the investment fund would rely on paid-in capital and guarantees from member states — this time from the entire EU, not just the currency union. In an interview after his speech, Mr. Szczurek said the investment fund should have a “spending capacity” of €500 billion, although its size would be “quite easy to adapt” depending on economic developments.
The proposal for EU-wide stimulus is note-worthy since it comes from Poland — the only EU country that has been growing throughout the crisis. Poland’s prime minister, Donald Tusk, has just been appointed as the next president of the European Council, a prime position for planting ideas in the heads of other EU leaders. The proposal also comes at a time when economists — and central bankers — are increasingly worried about the weakness of Europe’s recovery and the threat of deflation.
However, Mr. Szczurek said he hadn’t discussed his idea with other finance ministers in the 28-country EU and didn’t know whether Mr. Tusk would push it as a council president. Any advances on joint stimulus measures are likely to face resistance from rich EU countries such as Germany and Finland, which struggled to get support from voters and lawmakers for the creation of the ESM at a time of much fiercer market pressure.
The ESM has €80 billion in paid-in capital and €622 billion in callable capital from the euro zone’s 18 member states. Similar contributions would be necessary for the EU-wide investment fund, Mr. Szczurek said.
Another obstacle would be finding profitable projects to invest in. Under Mr. Szczurek’s plan, the fund would be the owner of its projects and finance it’s operations by eventually privatizing them. Any losses on that even would have to borne by national governments – a prospect that would raise legal issues countries like Germany and Finland.
Mr. Szczurek said he hoped to find backing for his idea at a meeting with his counterparts from other EU countries in Milan next week. “The problem is being better and better identified,” he said.