Europe's Investment Plan Surges to €500 Billion, But is it Working?

S&P Global Ratings
Written By: Michael Wilkins
S&P Global Ratings
Written By: Michael Wilkins

The Juncker plan was conceived in late 2014 to encourage investment in the real economy in the EU. The plan's goal was threefold: boost job creation and growth, meet the long-term needs of the economy and increase competitiveness, and help strengthen productive capacity and infrastructure. At the time, companies had little appetite to invest and neither did governments, worried about their public finances. To break the logjam, European Commission (EC) President Jean-Claude Juncker outlined the Investment Plan for Europe (IPE) in November 2014 to mobilize €315 billion in public and private investment over 2015-2017. To bolster the IPE, the European Fund for Strategic Investments (EFSI) was launched at the end of 2014 to fulfill the first goal of IPE, more specifically, to mobilize finance for investment, make finance reach the real economy, and improve the investment environment. Now, the EU is considering extending and enlarging the program, happy that the fund is starting to meet its key objectives of stimulating growth and employment. (Watch the related CreditMatters TV segment titled "Juncker Plan Stimulates Growth In The EU But More Is Needed," dated March 20, 2017.)

S&P Global Ratings believes that greater investment is still needed to lift potential growth in all European economies and address deficient demand in countries on the eurozone periphery, even though economic conditions in many EU countries have improved over the past two years. The timing for additional investment spending is still right, but implementation needs to be speeded up before the rise in global and European interest rates pull the attention of investors away from Juncker plan. Indeed, the European Parliament is working on a proposal to enlarge and extend the EFSI, in an effort dubbed EFSI 2.0. The European Parliament's formal vote will take place after negotiations with the Council of the EU, currently foreseen for May to June(1).

 

Overview

  • After a quick start and some notable results after its second year in operation, the EFSI should be able to meet its initial goal as new products are added and its capacity enlarged.
  • Economic conditions in Europe have improved substantially over the past two years, although the picture is mixed across the countries. Higher investment is still needed to lift potential growth in all European economies and address deficient demand in countries on the eurozone periphery.
  • We think that more action is needed to foster private-sector financing, which is one aim of the plan. Other challenges, like additionality and geographical coverage, are on the EFSI's radar, for its next version.

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