Old wine for New wine

18 December 2014

POPE FRANCIS delivered a pep talk to the European Parliament last month. In it, he gently styled the continent as feeling haggard and elderly. No longer able to meet its challenges with vigour or vitality.

He identified what he sees as a "common disease", a "loneliness" created by lack of connection between people and (implicitly) the policy-making institutions. And then lamented the dominance of technical and economic questions in bureaucratic political debate "to the detriment of genuine concern for human beings".

Meanwhile European Union leadership seems to be losing faith in programmes of austerity, as the continent's levels of investment dry up and the economy grinds to a halt. The latest solution, and perhaps a boon to the construction industry, is a three-year venture called InvestEU, which aims to kick-start private sector infrastructure investment of over EUR 300bn (USD 373bn) with a modest "seed fund" of EUR 20bn from the public coffers. This seed money will be used to insure investment, and keep everything flowing if the project gets off to a rough start.

With the UK demanding no increase in the EU budget, Germany carefully eyeing EU debt, and France calling for a four-fold increase in the seed fund, the Pope's warnings on the nature of modern decision-making seem to emerge. The practical result of this division is a reallocation of, rather than requisition of funds. But this in itself presents an opportunity.

The European Investment Bank clings to its AAA credit rating, and is risk-averse because of this. A vice president in the European Commission likened InvestEU to a new EIB being created within the EIB, a more dynamic entity capable of taking bigger risks, and supposedly capable of attracting the as-yet unseen private capital. President of the European Commission Jean-Claude Juncker has enjoyed solid support in Strasbourg for this, his first big initiative. He announced that Christmas had come early for Europe, and that his projected investment would raise European investment to pre-crisis levels. Lofty hopes for a comparatively small amount of money, and a region seen as a dark cloud over the global economy. Hopefully the expected 15- fold return on this money in the form of private sector investment isn't a fabrication. But there's another factor to take into account. Detractors have had a lot of fun calling InvestEU "old wine in new bottles", arguing that it is just existing funding being allocated to a different sector. Some media has called attention to the earlier provision of extra money to banks in the mistaken hope that they would lend more and spur the economy. But investment in infrastructure has a key benefit that other stimulus plans simply lack: the physical infrastructure left behind after the money has been spent. Which is much harder to lose in the paperwork.

And if the EUR 1.3tn (USD 1.62tn) long-list of projects to be considered that has been leaked online is genuine, the demanded work is just waiting to get done. It will be satisfying if the money does become available, and we are able to take the Pope at his word, and literally build connections